Oregon economy: Caught up in start-stop cycle

The Oregon economy firmed somewhat in October. While the Oregon Measure of Economic Activity fell to -0.95 from a revised –0.65 in October, the less-volatile three month moving average improved to -0.90 from -0.98 in October. The University of Oregon Index of Economic Indicators™ rose 0.3 percent to 89.3 (1997=100) in October, a second consecutive monthly increase.

Further comments:

• While the Oregon Measure of Economic Activity showed improvement, it continues to indicate Oregon is growing well below the trend of growth established over the 1990-2011 period. The manufacturing, construction, and household sectors pulled growth below its long-term trend, while the service sector made a positive contribution.
• A number of indicators in the UO Index showed improvement for the month. Initial unemployment claims continued to fall, suggesting a stronger economy that slowed the pace of layoffs. Similarly, the Oregon weight distance tax, a measure of trucking activity, also gained during October. Oregon residential building permits also rose, albeit from very low levels. Manufacturing orders for nondefense, nonaircraft capital goods slipped after a string of solid gains in the late summer and early fall.

• Compared to six months ago, the UO Index has fallen 3.6 percent (annualized) and less than half the components have improved or held steady over that period of time. Although an improvement compared to last month’s decline, sustained declines of this magnitude foreshadowed labor market recessions in Oregon in previous business cycles.

• The economy has been following a start-stop pattern of activity since the 2007-09 recession ended, with bursts of growth followed by temporary slowdowns that raise concerns of renewed recession. We may have experienced another such episode this past summer.

• Still, the combination of this summer’s decline in the UO Index, weak overall growth, likely fiscal contraction in the US next year, and the ongoing European financial crisis suggest caution with regards to the outlook for 2012, including a high chance of recession.